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EN BANC Oral arguments were held on July 14, 2005.

Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through
Mr. Justice Artemio V. Panganiban, voiced the rationale for its issuance of the temporary restraining order on July
1, 2005, to wit:
ABAKADA GURO PARTY LIST et al vs. ERMITA G.R. No. 168056 J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell
you a little background. You know when the law took effect
DECISION on July 1, 2005, the Court issued a TRO at about 5 oclock in
the afternoon. But before that, there was a lot of complaints
AUSTRIA-MARTINEZ, J.: aired on television and on radio. Some people in a gas
station were complaining that the gas prices went up by
The expenses of government, having for their object the interest of all, should be 10%. Some people were complaining that their electric bill
borne by everyone, and the more man enjoys the advantages of society, the more he ought to will go up by 10%. Other times people riding in domestic
hold himself honored in contributing to those expenses. air carrier were complaining that the prices that theyll have
-Anne Robert Jacques Turgot (1727-1781) to pay would have to go up by 10%. While all that was
French statesman and economist being aired, per your presentation and per our own
understanding of the law, thats not true. Its not true that the
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased e-vat law necessarily increased prices by 10% uniformly
emoluments for health workers, and wider coverage for full value-added tax benefits these are the reasons why isnt it?
Republic Act No. 9337 (R.A. No. 9337)[1] was enacted. Reasons, the wisdom of which, the Court even with its
extensive constitutional power of review, cannot probe. The petitioners in these cases, however, question not only ATTY. BANIQUED : No, Your Honor.
the wisdom of the law, but also perceived constitutional infirmities in its passage. J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that granted
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, the Petroleum companies some subsidy . . . interrupted
petitioners failed to justify their call for the invalidity of the law. Hence, R.A. No. 9337 is not unconstitutional. J. PANGANIBAN : Thats correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
LEGISLATIVE HISTORY J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the
Senate Bill No. 1950. elimination of the Excise Tax and the import duties. That is
why, it is not correct to say that the VAT as to petroleum
House Bill No. 3555[2] was introduced on first reading on January 7, 2005. The House Committee on dealers increased prices by 10%.
Ways and Means approved the bill, in substitution of House Bill No. 1468, which Representative (Rep.) Eric D. ATTY. BANIQUED : Yes, Your Honor.
Singson introduced on August 8, 2004. The President certified the bill on January 7, 2005 for immediate enactment. J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by
On January 27, 2005, the House of Representatives approved the bill on second and third reading. 10% to cover the E-Vat tax. If you consider the excise tax
and the import duties, the Net Tax would probably be in the
House Bill No. 3705[3] on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib neighborhood of 7%? We are not going into exact figures I
F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. Paras. Its mother bill is House Bill No. 3555. am just trying to deliver a point that different industries,
The House Committee on Ways and Means approved the bill on February 2, 2005. The President also certified it as different products, different services are hit differently. So
urgent on February 8, 2005. The House of Representatives approved the bill on second and third reading on February its not correct to say that all prices must go up by 10%.
28, 2005. ATTY. BANIQUED : Youre right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 1950[4] on March 7, present imposed a Sales Tax of 3%. When this E-Vat law
2005, in substitution of Senate Bill Nos. 1337, 1838 and 1873, taking into consideration House Bill Nos. 3555 and took effect the Sales Tax was also removed as a mitigating
3705. Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both measure. So, therefore, there is no justification to increase
sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified the bill the fares by 10% at best 7%, correct?
on March 11, 2005, and was approved by the Senate on second and third reading on April 13, 2005. ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for a day, were being increased arbitrarily by 10%. And thats one
committee conference on the disagreeing provisions of the proposed bills. reason among many others this Court had to issue TRO
because of the confusion in the implementation. Thats why
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House we added as an issue in this case, even if its tangentially
Bill No. 3705, and Senate Bill No. 1950, after having met and discussed in full free and conference, recommended taken up by the pleadings of the parties, the confusion in the
the approval of its report, which the Senate did on May 10, 2005, and with the House of Representatives agreeing implementation of the E-vat. Our people were subjected to
thereto the next day, May 11, 2005. the mercy of that confusion of an across the board increase
of 10%, which you yourself now admit and I think even the
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to the Government will admit is incorrect. In some cases, it should
President, who signed the same into law on May 24, 2005. Thus, came R.A. No. 9337. be 3% only, in some cases it should be 6% depending on
these mitigating measures and the location and situation of
July 1, 2005 is the effectivity date of R.A. No. 9337.[5] When said date came, the Court issued a temporary each product, of each service, of each company, isnt it?
restraining order, effective immediately and continuing until further orders, enjoining respondents from enforcing ATTY. BANIQUED : Yes, Your Honor.
and implementing the law. J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending the
clarification of all these and we wish the government will take time to clarify all
these by means of a more detailed implementing rules, in case the law is upheld
by this Court. . . .[6]
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive,
The Court also directed the parties to file their respective Memoranda. and confiscatory.

G.R. No. 168056 Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty or property
without due process of law under Article III, Section 1 of the Constitution. According to petitioners, the contested
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for sections impose limitations on the amount of input tax that may be claimed. Petitioners also argue that the input tax
prohibition on May 27, 2005. They question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending partakes the nature of a property that may not be confiscated, appropriated, or limited without due process of law.
Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% Petitioners further contend that like any other property or property right, the input tax credit may be transferred or
VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes disposed of, and that by limiting the same, the government gets to tax a profit or value-added even if there is no
a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain a profit or value-added.
uniform proviso authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate
to 12%, effective January 1, 2006, after any of the following conditions have been satisfied, to wit: Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of
the law under Article III, Section 1 of the Constitution, as the limitation on the creditable input tax if: (1) the entity
. . . That the President, upon the recommendation of the Secretary of Finance, shall, has a high ratio of input tax; or (2) invests in capital equipment; or (3) has several transactions with the government,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any is not based on real and substantial differences to meet a valid classification.
of the following conditions has been satisfied:
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) 28(1) of the Constitution, and that it is the smaller businesses with higher input tax to output tax ratio that will suffer
of the previous year exceeds two and four-fifth percent (2 4/5%); or the consequences thereof for it wipes out whatever meager margins the petitioners make.

(ii) National government deficit as a percentage of GDP of the previous year G.R. No. 168463
exceeds one and one-half percent (1 %).
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its petition for certiorari on June 30, 2005. They question the constitutionality of R.A. No. 9337 on the following
exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution. grounds:

G.R. No. 168207 1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power,
in violation of Article VI, Section 28(2) of the Constitution;
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing
the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337. 2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on provisions present in Senate Bill No. 1950 and House Bill No. 3705; and
on the ground that it amounts to an undue delegation of legislative power, petitioners also contend that the increase
in the VAT rate to 12% contingent on any of the two conditions being satisfied violates the due process clause 3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119,
embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax burden on the people, 121, 125,[7] 148, 151, 236, 237 and 288, which were present in Senate Bill No.
in that: (1) the 12% increase is ambiguous because it does not state if the rate would be returned to the original 10% 1950, violates Article VI, Section 24(1) of the Constitution, which provides that
if the conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the people are unsure of the all appropriation, revenue or tariff bills shall originate exclusively in the House of
applicable VAT rate from year to year; and (3) the increase in the VAT rate, which is supposed to be an incentive to Representatives
the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should only be based on
fiscal adequacy. G.R. No. 168730

Petitioners further claim that the inclusion of a stand-by authority granted to the President by the On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July
Bicameral Conference Committee is a violation of the no-amendment rule upon last reading of a bill laid down in 20, 2005, alleging unconstitutionality of the law on the ground that the limitation on the creditable input tax in effect
Article VI, Section 26(2) of the Constitution. allows VAT-registered establishments to retain a portion of the taxes they collect, thus violating the principle that
tax collection and revenue should be solely allocated for public purposes and expenditures. Petitioner Garcia further
G.R. No. 168461 claims that allowing these establishments to pass on the tax to the consumers is inequitable, in violation of Article
VI, Section 28(1) of the Constitution.
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell
Dealers, Inc., et al., assailing the following provisions of R.A. No. 9337: RESPONDENTS COMMENT
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on
depreciable goods shall be amortized over a 60-month period, if the acquisition, The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily,
excluding the VAT components, exceeds One Million Pesos (P1, 000,000.00); respondents contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed to cast
doubt on its validity.
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of
input tax to be credited against the output tax; and Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the bicameral
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of proceedings, exclusive origination of revenue measures and the power of the Senate concomitant thereto, have
its political subdivisions, instrumentalities or agencies, including GOCCs, to already been settled. With regard to the issue of undue delegation of legislative power to the President, respondents
deduct a 5% final withholding tax on gross payments of goods and services, which contend that the law is complete and leaves no discretion to the President but to increase the rate to 12% once any
are subject to 10% VAT under Sections 106 (sale of goods and properties) and 108 of the two conditions provided therein arise.
(sale of services and use or lease of properties) of the NIRC.
Respondents also refute petitioners argument that the increase to 12%, as well as the 70% limitation on E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,[16] R.A. No. 8241 or the
the creditable input tax, the 60-month amortization on the purchase or importation of capital goods Improved VAT Law,[17] R.A. No. 8424 or the Tax Reform Act of 1997,[18] and finally, the presently beleaguered
exceeding P1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary, oppressive, and R.A. No. 9337, also referred to by respondents as the VAT Reform Act.
confiscatory, and that it violates the constitutional principle on progressive taxation, among others.
The Court will now discuss the issues in logical sequence.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal reform agenda.
A reform in the value-added system of taxation is the core revenue measure that will tilt the balance towards a PROCEDURAL ISSUE
sustainable macroeconomic environment necessary for economic growth. I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
ISSUES
The Court defined the issues, as follows: a. Article VI, Section 24, and
b. Article VI, Section 26(2)
PROCEDURAL ISSUE
A. The Bicameral Conference Committee
Whether R.A. No. 9337 violates the following provisions of the Constitution:
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee
a. Article VI, Section 24, and exceeded its authority by:
b. Article VI, Section 26(2)
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No.
SUBSTANTIVE ISSUES 9337;

1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the 2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
NIRC, violate the following provisions of the Constitution:
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited
a. Article VI, Section 28(1), and against the output tax; and
b. Article VI, Section 28(2)
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the of taxes in addition to the value-added tax.
NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC, violate the
following provisions of the Constitution:
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
a. Article VI, Section 28(1), and
b. Article III, Section 1 It should be borne in mind that the power of internal regulation and discipline are intrinsic in any
legislative body for, as unerringly elucidated by Justice Story, [i]f the power did not exist, it would be utterly
impracticable to transact the business of the nation, either at all, or at least with decency, deliberation, and
RULING OF THE COURT order.[19] Thus, Article VI, Section 16 (3) of the Constitution provides that each House may determine the rules of
its proceedings. Pursuant to this inherent constitutional power to promulgate and implement its own rules of
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax procedure, the respective rules of each house of Congress provided for the creation of a Bicameral Conference
(VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its nature. Committee.

The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
or properties and services.[8] Being an indirect tax on expenditure, the seller of goods or services may pass on the
amount of tax paid to the buyer,[9] with the seller acting merely as a tax collector.[10] The burden of VAT is intended Sec. 88. Conference Committee. In the event that the House does not agree with
to fall on the immediate buyers and ultimately, the end-consumers. the Senate on the amendment to any bill or joint resolution, the differences may be settled by
the conference committees of both chambers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it
engages in, without transferring the burden to someone else.[11]Examples are individual and corporate income taxes, In resolving the differences with the Senate, the House panel shall, as much as
transfer taxes, and residence taxes.[12] possible, adhere to and support the House Bill. If the differences with the Senate are so
substantial that they materially impair the House Bill, the panel shall report such fact to the
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different House for the latters appropriate action.
mode. Prior to 1978, the system was a single-stage tax computed under the cost deduction method and was payable
only by the original sellers. The single-stage system was subsequently modified, and a mixture of the cost deduction Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed,
method and tax credit method was used to determine the value-added tax payable.[13] Under the tax credit method, sufficiently explicit statement of the changes in or amendments to the subject measure.
an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases,
inputs and imports.[14] ...

It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT The Chairman of the House panel may be interpellated on the Conference
system was rationalized by imposing a multi-stage tax rate of 0% or 10% on all sales using the tax credit method.[15] Committee Report prior to the voting thereon. The House shall vote on the Conference
Committee Report in the same manner and procedure as it votes on a bill on third and final
reading.

Rule XII, Section 35 of the Rules of the Senate states:


Sec. 35. In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint resolution, the differences shall be settled The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities
by a conference committee of both Houses which shall meet within ten (10) days after their committed by the conference committee in introducing changes or deleting provisions in the House and Senate bills.
composition. The President shall designate the members of the Senate Panel in the conference Akin to the Farias case,[22] the present petitions also raise an issue regarding the actions taken by the conference
committee with the approval of the Senate. committee on matters regarding Congress compliance with its own internal rules. As stated earlier, one of the most
basic and inherent power of the legislature is the power to formulate rules for its proceedings and the discipline of
Each Conference Committee Report shall contain a detailed and sufficiently its members. Congress is the best judge of how it should conduct its own business expeditiously and in the most
explicit statement of the changes in, or amendments to the subject measure, and shall be orderly manner. It is also the sole
signed by a majority of the members of each House panel, voting separately. concern of Congress to instill discipline among the members of its conference committee if it believes that said
members violated any of its rules of proceedings. Even the expanded jurisdiction of this Court cannot apply to
A comparative presentation of the conflicting House and Senate provisions and a questions regarding only the internal operation of Congress, thus, the Court is wont to deny a review of the internal
reconciled version thereof with the explanatory statement of the conference committee shall proceedings of a co-equal branch of government.
be attached to the report
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of
The creation of such conference committee was apparently in response to a problem, not addressed by Finance,[23] the Court already made the pronouncement that [i]f a change is desired in the practice [of the
any constitutional provision, where the two houses of Congress find themselves in disagreement over changes or Bicameral Conference Committee] it must be sought in Congress since this question is not covered by any
amendments introduced by the other house in a legislative bill. Given that one of the most basic powers of the constitutional provision but is only an internal rule of each house. [24] To date, Congress has not seen it fit to
legislative branch is to formulate and implement its own rules of proceedings and to discipline its members, may the make such changes adverted to by the Court. It seems, therefore, that Congress finds the practices of the bicameral
Court then delve into the details of how Congress complies with its internal rules or how it conducts its business of conference committee to be very useful for purposes of prompt and efficient legislative action.
passing legislation? Note that in the present petitions, the issue is not whether provisions of the rules of both houses
creating the bicameral conference committee are unconstitutional, but whether the bicameral conference Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the
committee has strictly complied with the rules of both houses, thereby remaining within the jurisdiction bicameral conference committees, the Court deems it necessary to dwell on the issue. The Court observes that there
conferred upon it by Congress. was a necessity for a conference committee because a comparison of the provisions of House Bill Nos. 3555 and
3705 on one hand, and Senate Bill No. 1950 on the other, reveals that there were indeed disagreements. As pointed
In the recent case of Farias vs. The Executive Secretary,[20] the Court En Banc, unanimously reiterated out in the petitions, said disagreements were as follows:
and emphasized its adherence to the enrolled bill doctrine, thus, declining therein petitioners plea for the Court to go
behind the enrolled copy of the bill. Assailed in said case was Congresss creation of two sets of bicameral conference House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950
committees, the lack of records of said committees proceedings, the alleged violation of said committees of the rules
of both houses, and the disappearance or deletion of one of the provisions in the compromise bill submitted by the
bicameral conference committee. It was argued that such irregularities in the passage of the law nullified R.A. No. With regard to Stand-By Authority in favor of President
9006, or the Fair Election Act.
Provides for 12% VAT on Provides for 12% VAT in general Provides for a single rate of 10%
Striking down such argument, the Court held thus: every sale of goods or on sales of goods or properties VAT on sale of goods or properties
properties (amending Sec. and reduced rates for sale of (amending Sec. 106 of NIRC),
Under the enrolled bill doctrine, the signing of a bill by the Speaker of the House 106 of NIRC); 12% VAT on certain locally manufactured 10% VAT on sale of services
and the Senate President and the certification of the Secretaries of both Houses of Congress importation of goods goods and petroleum products including sale of electricity by
that it was passed are conclusive of its due enactment. A review of cases reveals the Courts (amending Sec. 107 of and raw materials to be used in generation companies,
consistent adherence to the rule. The Court finds no reason to deviate from the salutary NIRC); and 12% VAT on the manufacture thereof transmission and distribution
rule in this case where the irregularities alleged by the petitioners mostly involved the sale of services and use or (amending Sec. 106 of NIRC); companies, and use or lease of
internal rules of Congress, e.g., creation of the 2nd or 3rd Bicameral Conference lease of properties 12% VAT on importation of properties (amending Sec. 108 of
Committee by the House. This Court is not the proper forum for the enforcement of (amending Sec. 108 of goods and reduced rates for NIRC)
these internal rules of Congress, whether House or Senate. Parliamentary rules are NIRC) certain imported products
merely procedural and with their observance the courts have no concern. Whatever including petroleum products
doubts there may be as to the formal validity of Rep. Act No. 9006 must be resolved in (amending Sec. 107 of NIRC);
its favor. The Court reiterates its ruling in Arroyo vs. De Venecia, viz.: and 12% VAT on sale of services
and use or lease of properties and
But the cases, both here and abroad, in varying forms of a reduced rate for certain services
expression, all deny to the courts the power to inquire into including power generation
allegations that, in enacting a law, a House of Congress failed to (amending Sec. 108 of NIRC)
comply with its own rules, in the absence of showing that there was
a violation of a constitutional provision or the rights of private
individuals. In Osmea v. Pendatun, it was held: At any rate, courts With regard to the no pass-on provision
have declared that the rules adopted by deliberative bodies are subject
to revocation, modification or waiver at the pleasure of the body No similar provision Provides that the VAT imposed Provides that the VAT imposed on
adopting them. And it has been said that Parliamentary rules are on power generation and on the sales of electricity by generation
merely procedural, and with their observance, the courts have no sale of petroleum products shall companies and services of
concern. They may be waived or disregarded by the legislative be absorbed by generation transmission companies and
body. Consequently, mere failure to conform to parliamentary companies or sellers, distribution companies, as well as
usage will not invalidate the action (taken by a deliberative body) respectively, and shall not be those of franchise grantees of
when the requisite number of members have agreed to a particular passed on to consumers electric utilities shall not apply to
measure.[21] (Emphasis supplied) residential
end-users. VAT shall be absorbed that may be credited against the output tax, although it crafted its own language as to the amount of the limitation
by generation, transmission, and on input tax credits and the manner of computing the same by providing thus:
distribution companies.
With regard to 70% limit on input tax credit (A) Creditable Input Tax. . . .

Provides that the input tax No similar provision Provides that the input tax credit ...
credit for capital goods on for capital goods on which a VAT
which a VAT has been paid has been paid shall be equally Provided, The input tax on goods purchased or imported in a calendar
shall be equally distributed distributed over 5 years or the month for use in trade or business for which deduction for depreciation
over 5 years or the depreciable life of such capital is allowed under this Code, shall be spread evenly over the month of
depreciable life of such goods; the input tax credit for acquisition and the fifty-nine (59) succeeding months if the aggregate
capital goods; the input tax goods and services other than acquisition cost for such goods, excluding the VAT component thereof,
credit for goods and services capital goods shall not exceed 90% exceeds one million Pesos (P1,000,000.00): PROVIDED, however,
other than capital goods shall of the output VAT. that if the estimated useful life of the capital good is less than five (5)
not exceed 5% of the total years, as used for depreciation purposes, then the input VAT shall be
amount of such goods and spread over such shorter period: . . .
services; and for persons
engaged in retail trading of (B) Excess Output or Input Tax. If at the end of any taxable quarter the
goods, the allowable input output tax exceeds the input tax, the excess shall be paid by the VAT-
tax credit shall not exceed registered person. If the input tax exceeds the output tax, the excess
11% of the total amount of shall be carried over to the succeeding quarter or quarters: PROVIDED
goods purchased. that the input tax inclusive of input VAT carried over from the previous
quarter that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT
With regard to amendments to be made to NIRC provisions regarding income and excise taxes any input tax attributable to zero-rated sales by a VAT-registered
person may at his option be refunded or credited against other internal
No similar provision No similar provision Provided for amendments to revenue taxes, . . .
several NIRC provisions regarding
corporate income, percentage,
franchise and excise taxes 4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise,
percentage and excise taxes, the conference committee decided to include such amendments and basically adopted
The disagreements between the provisions in the House bills and the Senate bill were with regard to (1) the provisions found in Senate Bill No. 1950, with some changes as to the rate of the tax to be imposed.
what rate of VAT is to be imposed; (2) whether only the VAT imposed on electricity generation, transmission and
distribution companies should not be passed on to consumers, as proposed in the Senate bill, or both the VAT Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral
imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale of Conference Committee is mandated to settle the differences between the disagreeing provisions in the House bill
petroleum products should not be passed on to consumers, as proposed in the House bill; (3) in what manner input and the Senate bill. The term settle is synonymous to reconcile and harmonize.[25] To reconcile or harmonize
tax credits should be limited; (4) and whether the NIRC provisions on corporate income taxes, percentage, franchise disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the specific provisions of either
and excise taxes should be amended. the House bill or Senate bill, (b) decide that neither provisions in the House bill or the provisions in the Senate bill
would
There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing provisions.
the Bicameral Conference Committee was mandated by the rules of both houses of Congress to act on the same by
settling said differences and/or disagreements. The Bicameral Conference Committee acted on the disagreeing
provisions by making the following changes: In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing
provisions were meant only to reconcile and harmonize the disagreeing provisions for it did not inject any idea or
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the intent that is wholly foreign to the subject embraced by the original provisions.
Conference Committee Report that the Bicameral Conference Committee tried to bridge the gap in the difference
between the 10% VAT rate proposed by the Senate, and the various rates with 12% as the highest VAT rate proposed The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the
by the House, by striking a compromise whereby the present 10% VAT rate would be retained until certain Senate is retained until such time that certain conditions arise when the 12% VAT wanted by the House shall be
conditions arise, i.e., the value-added tax collection as a percentage of gross domestic product (GDP) of the previous imposed, appears to be a compromise to try to bridge the difference in the rate of VAT proposed by the two houses
year exceeds 2 4/5%, or National Government deficit as a percentage of GDP of the previous year exceeds 1%, when of Congress. Nevertheless, such compromise is still totally within the subject of what rate of VAT should be imposed
the President, upon recommendation of the Secretary of Finance shall raise the rate of VAT to 12% effective January on taxpayers.
1, 2006.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral
2. With regard to the disagreement on whether only the VAT imposed on electricity generation, Conference Committee held on May 10, 2005, Sen. Ralph Recto, Chairman of the Senate Panel, explained the reason
transmission and distribution companies should not be passed on to consumers or whether both the VAT imposed for deleting the no pass-on provision in this wise:
on electricity generation, transmission and distribution companies and the VAT imposed on sale of petroleum
products may be passed on to consumers, the Bicameral Conference Committee chose to settle such disagreement . . . the thinking was just to keep the VAT law or the VAT bill simple. And we
by altogether deleting from its Report any no pass-on provision. were thinking that no sector should be a beneficiary of legislative grace, neither should any
sector be discriminated on. The VAT is an indirect tax. It is a pass on-tax. And lets keep it
3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral plain and simple. Lets not confuse the bill and put a no pass-on provision. Two-thirds of the
Conference Committee decided to adopt the position of the House by putting a limitation on the amount of input tax world have a VAT system and in this two-thirds of the globe, I have yet to see a VAT with a
no pass-though provision. So, the thinking of the Senate is basically simple, lets keep the VAT
simple.[26] (Emphasis supplied) The Court reiterates here that the no-amendment rule refers only to the procedure to be followed by
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision never really enjoyed each house of Congress with regard to bills initiated in each of said respective houses, before said bill is
the support of either House.[27] transmitted to the other house for its concurrence or amendment. Verily, to construe said provision in a way as
to proscribe any further changes to a bill after one house has voted on it would lead to absurdity as this would mean
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference that the other house of Congress would be deprived of its constitutional power to amend or introduce changes to said
Committee came to a compromise on the percentage rate of the limitation or cap on such input tax credit, but again, bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the introduction by the Bicameral
the change introduced by the Bicameral Conference Committee was totally within the intent of both houses to put a Conference Committee of amendments and modifications to disagreeing provisions in bills that have been acted
cap on input tax that may be upon by both houses of Congress is prohibited.
credited against the output tax. From the inception of the subject revenue bill in the House of Representatives, one
of the major objectives was to plug a glaring loophole in the tax policy and administration by creating vital C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the
restrictions on the claiming of input VAT tax credits . . . and [b]y introducing limitations on the claiming of tax Constitution on Exclusive Origination of Revenue Bills
credit, we are capping a major leakage that has placed our collection efforts at an apparent disadvantage. [28]

As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate
Bill No. 1950, since said provisions were among those referred to it, the conference committee had to act on the income taxes and percentage, excise taxes. Petitioners refer to the following provisions, to wit:
same and it basically adopted the version of the Senate.
Section
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to 27 Rates of Income Tax on Domestic
subjects of the provisions referred Corporation
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to lack 28(A)(1) Tax on Resident Foreign Corporation
or excess of jurisdiction committed by the Bicameral Conference Committee. In the earlier cases of Philippine 28(B)(1) Inter-corporate Dividends
Judges Association vs. Prado[29] and Tolentino vs. Secretary of Finance,[30] the Court recognized the long-standing 34(B)(1) Inter-corporate Dividends
legislative practice of giving said conference committee ample latitude for compromising differences between the 116 Tax on Persons Exempt from VAT
Senate and the House. Thus, in the Tolentino case, it was held that: 117 Percentage Tax on domestic carriers and
keepers of Garage
. . . it is within the power of a conference committee to include in its report an 119 Tax on franchises
entirely new provision that is not found either in the House bill or in the Senate bill. If the 121 Tax on banks and Non-Bank Financial
committee can propose an amendment consisting of one or two provisions, there is no reason Intermediaries
why it cannot propose several provisions, collectively considered as an amendment in the 148 Excise Tax on manufactured oils and other
nature of a substitute, so long as such amendment is germane to the subject of the bills before fuels
the committee. After all, its report was not final but needed the approval of both houses of 151 Excise Tax on mineral products
Congress to become valid as an act of the legislative department. The charge that in this 236 Registration requirements
case the Conference Committee acted as a third legislative chamber is thus without any 237 Issuance of receipts or sales or commercial
basis.[31] (Emphasis supplied) invoices
288 Disposition of Incremental Revenue
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the
Constitution on the No-Amendment Rule
Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the
Article VI, Sec. 26 (2) of the Constitution, states: House. They aver that House Bill No. 3555 proposed amendments only regarding Sections 106, 107, 108, 110 and
114 of the NIRC, while House Bill No. 3705 proposed amendments only to Sections 106, 107,108, 109, 110 and
No bill passed by either House shall become a law unless it has passed three 111 of the NIRC; thus, the other sections of the NIRC which the Senate amended but which amendments were not
readings on separate days, and printed copies thereof in its final form have been distributed found in the House bills are not intended to be amended by the House of Representatives. Hence, they argue that
to its Members three days before its passage, except when the President certifies to the since the proposed amendments did not originate from the House, such amendments are a violation of Article VI,
necessity of its immediate enactment to meet a public calamity or emergency. Upon the last Section 24 of the Constitution.
reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken The argument does not hold water.
immediately thereafter, and the yeas and nays entered in the Journal.
Article VI, Section 24 of the Constitution reads:

Petitioners argument that the practice where a bicameral conference committee is allowed to add or delete Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the
provisions in the House bill and the Senate bill after these had passed three readings is in effect a circumvention of public debt, bills of local application, and private bills shall originate exclusively in the House
the no amendment rule (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the Court to deviate from its of Representatives but the Senate may propose or concur with amendments.
ruling in the Tolentino case that:

Nor is there any reason for requiring that the Committees Report in these cases In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the
must have undergone three readings in each of the two houses. If that be the case, there would move for amending provisions of the NIRC dealing mainly with the value-added tax. Upon transmittal of said House
be no end to negotiation since each house may seek modification of the compromise bill. . . . bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC
provisions on the value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is the
Art. VI. 26 (2) must, therefore, be construed as referring only to bills introduction by the Senate of provisions not dealing directly with the value- added tax, which is the only kind of tax
introduced for the first time in either house of Congress, not to the conference committee being amended in the House bills, still within the purview of the constitutional provision authorizing the Senate to
report.[32](Emphasis supplied) propose or concur with amendments to a revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus: distributing the burden across all sectors instead of putting it entirely on the shoulders of the consumers. The
sponsorship speech of Sen. Ralph Recto on why the provisions on income tax on corporation were included is worth
. . . To begin with, it is not the law but the revenue bill which is required by the quoting:
Constitution to originate exclusively in the House of Representatives. It is important to
emphasize this, because a bill originating in the House may undergo such extensive changes All in all, the proposal of the Senate Committee on Ways and Means will
in the Senate that the result may be a rewriting of the whole. . . . At this point, what is important raise P64.3 billion in additional revenues annually even while by mitigating prices of power,
to note is that, as a result of the Senate action, a distinct bill may be produced. To insist that services and petroleum products.
a revenue statute and not only the bill which initiated the legislative process culminating
in the enactment of the law must substantially be the same as the House bill would be to However, not all of this will be wrung out of VAT. In fact, only P48.7 billion
deny the Senates power not only to concur with amendments but also to propose amount is from the VAT on twelve goods and services. The rest of the tab P10.5 billion- will
amendments. It would be to violate the coequality of legislative power of the two houses of be picked by corporations.
Congress and in fact make the House superior to the Senate.
What we therefore prescribe is a burden sharing between
Given, then, the power of the Senate to propose amendments, the Senate can corporate Philippines and the consumer. Why should the latter bear all the pain? Why should
propose its own version even with respect to bills which are required by the Constitution the fiscal salvation be only on the burden of the consumer?
to originate in the House.
... The corporate worlds equity is in form of the increase in the corporate income tax
Indeed, what the Constitution simply means is that the initiative for filing revenue, from 32 to 35 percent, but up to 2008 only. This will raise P10.5 billion a year. After that, the
tariff or tax bills, bills authorizing an increase of the public debt, private bills and bills of local rate will slide back, not to its old rate of 32 percent, but two notches lower, to 30 percent.
application must come from the House of Representatives on the theory that, elected as they
are from the districts, the members of the House can be expected to be more sensitive to Clearly, we are telling those with the capacity to pay, corporations, to bear with
the local needs and problems. On the other hand, the senators, who are elected at large, this emergency provision that will be in effect for 1,200 days, while we put our fiscal house
are expected to approach the same problems from the national perspective. Both views in order. This fiscal medicine will have an expiry date.
are thereby made to bear on the enactment of such laws.[33] (Emphasis supplied)
For their assistance, a reward of tax reduction awaits them. We intend to keep the
Since there is no question that the revenue bill exclusively originated in the House of Representatives, length of their sacrifice brief. We would like to assure them that not because there is a light at
the Senate was acting within its the end of the tunnel, this government will keep on making the tunnel long.
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950
amending corporate income taxes, percentage, excise and franchise taxes. Verily, Article VI, Section 24 of the The responsibility will not rest solely on the weary shoulders of the small man.
Constitution does not contain any prohibition or limitation on the extent of the amendments that may be introduced Big business will be there to share the burden.[35]
by the Senate to the House revenue bill.

Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched As the Court has said, the Senate can propose amendments and in fact, the amendments made on
in the House bills are still in furtherance of the intent of the House in initiating the subject revenue bills. The provisions in the tax on income of corporations are germane to the purpose of the house bills which is to raise
Explanatory Note of House Bill No. 1468, the very first House bill introduced on the floor, which was later revenues for the government.
substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of solving the
countrys serious financial problems. To do this, government expenditures must be strictly monitored and controlled Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the
and revenues must be significantly increased. This may be easier said than done, but our fiscal authorities are still reforms to the VAT system, as these sections would cushion the effects of VAT on consumers. Considering that
optimistic the government will be operating on a balanced budget by the year 2009. In fact, several measures that certain goods and services which were subject to percentage tax and excise tax would no longer be VAT-exempt,
will result to significant expenditure savings have been identified by the administration. It is supported with a the consumer would be burdened more as they would be paying the VAT in addition to these taxes. Thus, there is a
credible package of revenue measures that include measures to improve tax administration and control the need to amend these sections to soften the impact of VAT. Again, in his sponsorship speech, Sen. Recto said:
leakages in revenues from income taxes and the value-added tax (VAT). (Emphasis supplied)
However, for power plants that run on oil, we will reduce to zero the present excise
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that: tax on bunker fuel, to lessen the effect of a VAT on this product.

In the budget message of our President in the year 2005, she reiterated that we all For electric utilities like Meralco, we will wipe out the franchise tax in exchange
acknowledged that on top of our agenda must be the restoration of the health of our fiscal for a VAT.
system.
In order to considerably lower the consolidated public sector deficit and eventually And in the case of petroleum, while we will levy the VAT on oil products, so as
achieve a balanced budget by the year 2009, we need to seize windows of opportunities not to destroy the VAT chain, we will however bring down the excise tax on socially sensitive
which might seem poignant in the beginning, but in the long run prove effective and products such as diesel, bunker, fuel and kerosene.
beneficial to the overall status of our economy. One such opportunity is a review of
existing tax rates, evaluating the relevance given our present conditions.[34] (Emphasis ...
supplied)
What do all these exercises point to? These are not contortions of giving to the left
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring hand what was taken from the right. Rather, these sprang from our concern of softening the
in sizeable revenues for the government impact of VAT, so that the people can cushion the blow of higher prices they will have to pay
to supplement our countrys serious financial problems, and improve tax administration and control of the leakages as a result of VAT.[36]
in revenues from income taxes and value-added taxes. As these house bills were transmitted to the Senate, the latter,
approaching the measures from the point of national perspective, can introduce amendments within the purposes of The other sections amended by the Senate pertained to matters of tax administration which are necessary
those bills. It can provide for ways that would soften the impact of the VAT measure on the consumer, i.e., by for the implementation of the changes in the VAT system.
(ii) national government deficit as a percentage of GDP of the
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of the previous year exceeds one and one-half percent (1 %).
house bills, which is to supplement our countrys fiscal deficit, among others. Thus, the Senate acted within its power
to propose those amendments. SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to
read as follows:
SUBSTANTIVE ISSUES
I. SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the Properties
following provisions of the Constitution:
(A) Rate and Base of Tax. There shall be levied, assessed and collected,
a. Article VI, Section 28(1), and a value-added tax equivalent to ten percent (10%) of gross receipts
b. Article VI, Section 28(2) derived from the sale or exchange of services: provided, that the
A. No Undue Delegation of Legislative Power President, upon the recommendation of the Secretary of Finance,
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in shall, effective January 1, 2006, raise the rate of value-added tax to
common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC twelve percent (12%), after any of the following conditions has
giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is met, been satisfied.
constitutes undue delegation of the legislative power to tax.
(i) value-added tax collection as a percentage of Gross Domestic
The assailed provisions read as follows: Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%) or
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read (ii) national government deficit as a percentage of GDP of the
as follows: previous year exceeds one and one-half percent (1
%). (Emphasis supplied)
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a
(A) Rate and Base of Tax. There shall be levied, assessed and collected virtual abdication by Congress of its exclusive power to tax because such delegation is not within the purview of
on every sale, barter or exchange of goods or properties, a value-added Section 28 (2), Article VI of the Constitution, which provides:
tax equivalent to ten percent (10%) of the gross selling price or gross
value in money of the goods or properties sold, bartered or exchanged, The Congress may, by law, authorize the President to fix within specified limits,
such tax to be paid by the seller or transferor: provided, that the and may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other
President, upon the recommendation of the Secretary of Finance, duties or imposts within the framework of the national development program of the
shall, effective January 1, 2006, raise the rate of value-added tax to government.
twelve percent (12%), after any of the following conditions has
been satisfied. They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well
as on the sale or exchange of services, which cannot be included within the purview of tariffs under the exempted
(i) value-added tax collection as a percentage of Gross delegation as the latter refers to customs duties, tolls or tribute payable upon merchandise to the government and
Domestic Product (GDP) of the previous year exceeds usually imposed on goods or merchandise imported or exported.
two and four-fifth percent (2 4/5%) or
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the
(ii) national government deficit as a percentage of GDP of the legislative power to tax is contrary to republicanism. They insist that accountability, responsibility and transparency
previous year exceeds one and one-half percent (1 %). should dictate the actions of Congress and they should not pass to the President the decision to impose taxes. They
also argue that the law also effectively nullified the Presidents power of control, which includes the authority to set
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to aside and nullify the acts of her subordinates like the Secretary of Finance, by mandating the fixing of the tax rate
read as follows: by the President upon the recommendation of the Secretary of Finance.

SEC. 107. Value-Added Tax on Importation of Goods. Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the
(A) In General. There shall be levied, assessed and collected on every conditions provided by the law to bring about either or both the conditions precedent.
importation of goods a value-added tax equivalent to ten percent (10%)
based on the total value used by the Bureau of Customs in determining On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition
tariff and customs duties, plus customs duties, excise taxes, if any, and of the 12% rate would be subject to the whim of the Secretary of Finance, an unelected bureaucrat, contrary to the
other charges, such tax to be paid by the importer prior to the release principle of no taxation without representation. They submit that the Secretary of Finance is not mandated to give a
of such goods from customs custody: Provided, That where the favorable recommendation and he may not even give his recommendation. Moreover, they allege that no guiding
customs duties are determined on the basis of the quantity or volume standards are provided in the law on what basis and as to how he will make his recommendation. They claim,
of the goods, the value-added tax shall be based on the landed cost plus nonetheless, that any recommendation of the Secretary of Finance can easily be brushed aside by the President since
excise taxes, if any: provided, further, that the President, upon the the former is a mere alter ego of the latter, such that, ultimately, it is the President who decides whether to impose
recommendation of the Secretary of Finance, shall, effective the increased tax rate or not.
January 1, 2006, raise the rate of value-added tax to twelve percent
(12%) after any of the following conditions has been satisfied. A brief discourse on the principle of non-delegation of powers is instructive.

(i) value-added tax collection as a percentage of Gross Domestic The principle of separation of powers ordains that each of the three great branches of government has
Product (GDP) of the previous year exceeds two and exclusive cognizance of and is supreme in matters falling within its own constitutionally allocated sphere. [37] A
four-fifth percent (2 4/5%) or logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in the government.Notwithstanding the apparent tendency, however, to relax the rule prohibiting
Latin maxim: potestas delegata non delegari potest which means what has been delegated, cannot be delegation of legislative authority on account of the complexity arising from social and
delegated.[38] This doctrine is based on the ethical principle that such as delegated power constitutes not only a right economic forces at work in this modern industrial age, the orthodox pronouncement of Judge
but a duty to be performed by the delegate through the instrumentality of his own judgment and not through the Cooley in his work on Constitutional Limitations finds restatement in Prof. Willoughby's
intervening mind of another.[39] treatise on the Constitution of the United States in the following language speaking of
declaration of legislative power to administrative agencies: The principle which permits the
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that the Legislative legislature to provide that the administrative agent may determine when the
power shall be vested in the Congress of the Philippines which shall consist of a Senate and a House of circumstances are such as require the application of a law is defended upon the ground
Representatives. The powers which Congress is prohibited from delegating are those which are strictly, or inherently that at the time this authority is granted, the rule of public policy, which is the essence
and exclusively, legislative. Purely legislative power, which can never be delegated, has been described as of the legislative act, is determined by the legislature. In other words, the legislature, as
the authority to make a complete law complete as to the time when it shall take effect and as to whom it shall it is its duty to do, determines that, under given circumstances, certain executive or
be applicable and to determine the expediency of its enactment.[40] Thus, the rule is that in order that a court may administrative action is to be taken, and that, under other circumstances, different or
be justified in holding a statute unconstitutional as a delegation of legislative power, it must appear that the power no action at all is to be taken. What is thus left to the administrative official is not the
involved is purely legislative in nature that is, one appertaining exclusively to the legislative department. It is the legislative determination of what public policy demands, but simply the ascertainment
nature of the power, and not the liability of its use or the manner of its exercise, which determines the validity of its of what the facts of the case require to be done according to the terms of the law by
delegation. which he is governed. The efficiency of an Act as a declaration of legislative will must,
of course, come from Congress, but the ascertainment of the contingency upon which
Nonetheless, the general rule barring delegation of legislative powers is subject to the following the Act shall take effect may be left to such agencies as it may designate. The legislature,
recognized limitations or exceptions: then, may provide that a law shall take effect upon the happening of future specified
contingencies leaving to some other person or body the power to determine when the
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the specified contingency has arisen. (Emphasis supplied).[46]
Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the In Edu vs. Ericta,[47] the Court reiterated:
Constitution; What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal
(3) Delegation to the people at large; them; the test is the completeness of the statute in all its terms and provisions when it leaves the hands of the
(4) Delegation to local governments; and legislature. To determine whether or not there is an undue delegation of legislative power, the inquiry must be
(5) Delegation to administrative bodies. directed to the scope and definiteness of the measure enacted. The legislative does not abdicate its functions when
it describes what job must be done, who is to do it, and what is the scope of his authority. For a complex
economy, that may be the only way in which the legislative process can go forward. A distinction has rightfully
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is been made between delegation of power to make the laws which necessarily involves a discretion as to what
valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or it shall be, which constitutionally may not be done, and delegation of authority or discretion as to its execution
implemented by the delegate;[41] and (b) fixes a standard the limits of which are sufficiently determinate and to be exercised under and in pursuance of the law, to which no valid objection can be made. The Constitution
determinable to which the delegate must conform in the performance of his functions.[42] A sufficient standard is one is thus not to be regarded as denying the legislature the necessary resources of flexibility and practicability.
which defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply (Emphasis supplied).[48]
it. It indicates the circumstances under which the legislative command is to be effected. [43] Both tests are intended to
prevent a total transference of legislative authority to the delegate, who is not allowed to step into the shoes of the Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts
legislature and exercise a power essentially legislative.[44] or conditions, or the happening of contingencies, on which the operation of a statute is, by its terms, made to depend,
but the legislature must prescribe sufficient standards, policies or limitations on their authority.[49] While the power
In People vs. Vera,[45] the Court, through eminent Justice Jose P. Laurel, expounded on the concept and to tax cannot be delegated to executive agencies, details as to the enforcement and administration of an exercise of
extent of delegation of power in this wise: such power may be left to them, including the power to determine the existence of facts on which its operation
depends.[50]
In testing whether a statute constitutes an undue delegation of legislative power or The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of
not, it is usual to inquire whether the statute was complete in all its terms and provisions when legislation is not of itself a legislative function, but is simply ancillary to legislation. Thus, the duty of correlating
it left the hands of the legislature so that nothing was left to the judgment of any other information and making recommendations is the kind of subsidiary activity which the legislature may perform
appointee or delegate of the legislature. through its members, or which it may delegate to others to perform. Intelligent legislation on the complicated
... problems of modern society is impossible in the absence of accurate information on the part of the legislators, and
The true distinction, says Judge Ranney, is between the delegation of power any reasonable method of securing such information is proper. [51] The Constitution as a continuously operative
to make the law, which necessarily involves a discretion as to what it shall be, and charter of government does not require that Congress find for itself
conferring an authority or discretion as to its execution, to be exercised under and in every fact upon which it desires to base legislative action or that it make for itself detailed determinations which it
pursuance of the law. The first cannot be done; to the latter no valid objection can be has declared to be prerequisite to application of legislative policy to particular facts and circumstances impossible
made. for Congress itself properly to investigate.[52]

... In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and
6 which reads as follows:
It is contended, however, that a legislative act may be made to the effect as law
after it leaves the hands of the legislature. It is true that laws may be made effective on certain That the President, upon the recommendation of the Secretary of Finance, shall,
contingencies, as by proclamation of the executive or the adoption by the people of a particular effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any
community. In Wayman vs. Southard, the Supreme Court of the United States ruled that the of the following conditions has been satisfied:
legislature may delegate a power not legislative which it may itself rightfully exercise. The
power to ascertain facts is such a power which may be delegated. There is nothing (i) Value-added tax collection as a percentage of Gross
essentially legislative in ascertaining the existence of facts or conditions as the basis of Domestic Product (GDP) of the previous year exceeds two and four-
the taking into effect of a law. That is a mental process common to all branches of the fifth percent (2 4/5%); or
be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only
(ii) National government deficit as a percentage of GDP of way in which the legislative process can go forward.[58]
the previous year exceeds one and one-half percent (1 %).
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the
The case before the Court is not a delegation of legislative power. It is simply a delegation of legislative power to tax is contrary to the principle of republicanism, the same deserves scant consideration. Congress
ascertainment of facts upon which enforcement and administration of the increase rate under the law is contingent. did not delegate the power to tax but the mere implementation of the law. The intent and will to increase the VAT
The legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact rate to 12% came from Congress and the task of the President is to simply execute the legislative policy. That
or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the Congress chose to do so in such a manner is not within the province of the Court to inquire into, its task being to
control of the executive. interpret the law.[59]

No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create the
the word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a conditions to bring about either or both the conditions precedent does not deserve any merit as this argument is
statute denotes an imperative obligation and is inconsistent with the idea of discretion.[53] Where the law is clear and highly speculative. The Court does not rule on allegations which are manifestly conjectural, as these may not exist
unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that the at all.The Court deals with facts, not fancies; on realities, not appearances. When the Court acts on appearances
mandate is obeyed.[54] instead of realities, justice and law will be short-lived.

Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence B. The 12% Increase VAT Rate Does Not Impose an Unfair and
of any of the conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch Unnecessary Additional Tax Burden
as the law specifically uses the word shall, the exercise of discretion by the President does not come into play. It is
a clear directive to impose the 12% VAT rate when the specified conditions are present. The time of taking into
effect of the 12% VAT rate is based on the happening of a certain specified contingency, or upon the ascertainment Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional
of certain facts or conditions by a person or body other than the legislature itself. tax burden on the people. Petitioners also argue that the 12% increase, dependent on any of the 2 conditions set forth
in the contested provisions, is ambiguous because it does not state if the VAT rate would be returned to the original
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law 10% if the rates are no longer satisfied. Petitioners also argue that such rate is unfair and unreasonable, as the people
effectively nullified the Presidents power of control over the Secretary of Finance by mandating the fixing of the tax are unsure of the applicable VAT rate from year to year.
rate by the President upon the recommendation of the Secretary of Finance. The Court cannot also subscribe to the
position of petitioners Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase upon the forth therein are satisfied, the President shall increase the VAT rate to 12%. The provisions of the law are clear. It
recommendation of the Secretary of Finance. Neither does the Court find persuasive the submission of petitioners does not provide for a return to the 10% rate nor does it empower the President to so revert if, after the rate is
Escudero, et al. that any recommendation by the Secretary of Finance can easily be brushed aside by the President increased to 12%, the VAT collection goes below the 2 4/5 of the GDP of the previous year or that the national
since the former is a mere alter ego of the latter. government deficit as a percentage of GDP of the previous year does not exceed 1%.

When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be
of the Department of Finance he is the assistant and agent of the Chief Executive. The multifarious executive and introduced where none is provided for. Rewriting the law is a forbidden ground that only Congress may tread
[60]
administrative functions of the Chief Executive are performed by and through the executive departments, and the upon.
acts of the secretaries of such departments, such as the Department of Finance, performed and promulgated in the
regular course of business, are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court
the Chief Executive. The Secretary of Finance, as such, occupies a political position and holds office in an advisory finds none, petitioners argument is, at best, purely speculative. There is no basis for petitioners fear of a fluctuating
capacity, and, in the language of Thomas Jefferson, "should be of the President's bosom confidence" and, in the VAT rate because the law itself does not provide that the rate should go back to 10% if the conditions provided in
language of Attorney-General Cushing, is subject to the direction of the President."[55] Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the law is clear and unambiguous,
so that there is no occasion for the court's seeking the legislative intent, the law must be taken as it is, devoid of
judicial addition or subtraction.[61]
In the present case, in making his recommendation to the President on the existence of either of the two Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the
conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. In such President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should be based on fiscal
instance, he is not subject to the power of control and direction of the President. He is acting as the agent of the adequacy.
legislative department, to determine and declare the event upon which its expressed will is to take effect. [56] The
Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented, Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is
considering that he possesses all the facilities to gather data and information and has a much broader perspective to another condition, i.e., the national government deficit as a percentage of GDP of the previous year exceeds one and
properly evaluate them. His function is to gather and collate statistical data and other pertinent information and verify one-half percent (1 %).
if any of the two conditions laid out by Congress is present. His personality in such instance is in reality but a
projection of that of Congress. Thus, being the agent of Congress and not of the President, the President cannot alter Respondents explained the philosophy behind these alternative conditions:
or modify or nullify, or set aside the findings of the Secretary of Finance and to substitute the judgment of the former
for that of the latter. 1. VAT/GDP Ratio > 2.8%

Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, The condition set for increasing VAT rate to 12% have economic or fiscal
namely, whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product meaning. If VAT/GDP is less than 2.8%, it means that government has weak or no capability
(GDP) of the previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a of implementing the VAT or that VAT is not effective in the function of the tax collection.
percentage of GDP of the previous year exceeds one and one-half percent (1%). If either of these two instances has Therefore, there is no value to increase it to 12% because such action will also be ineffectual.
occurred, the Secretary of Finance, by legislative mandate, must submit such information to the President. Then the
12% VAT rate must be imposed by the President effective January 1, 2006. There is no undue delegation of 2. Natl Govt Deficit/GDP >1.5%
legislative power but only of the discretion as to the execution of a law. This is constitutionally
permissible.[57] Congress does not abdicate its functions or unduly delegate power when it describes what job must
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the of this debt spiral. And the only way, I think, we can get out of this debt spiral is really have
fiscal condition of government has reached a relatively sound position or is towards the a front-end adjustment in our revenue base.[65]
direction of a balanced budget position. Therefore, there is no need to increase the VAT rate
since the fiscal house is in a relatively healthy position. Otherwise stated, if the ratio is more
than 1.5%, there is indeed a need to increase the VAT rate.[62] The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable
catastrophe. Whether the law is indeed sufficient to answer the states economic dilemma is not for the Court to
judge. In the Farias case, the Court refused to consider the various arguments raised therein that dwelt on the wisdom
That the first condition amounts to an incentive to the President to increase the VAT collection does not of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
render it unconstitutional so long as there is a public purpose for which the law was passed, which in this case, is
mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in revenue. . . . policy matters are not the concern of the Court. Government policy is within
the exclusive dominion of the political branches of the government. It is not for this Court to
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam look into the wisdom or propriety of legislative determination. Indeed, whether an enactment
Smith in his Canons of Taxation (1776), as: is wise or unwise, whether it is based on sound economic theory, whether it is the best means
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of to achieve the desired results, whether, in short, the legislative discretion within its prescribed
the people as little as possible over and above what it brings into the public limits should be exercised in a particular manner are matters for the judgment of the
treasury of the state.[63] legislature, and the serious conflict of opinions does not suffice to bring them within the range
of judicial cognizance.[66]

It simply means that sources of revenues must be adequate to meet government expenditures and their In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive
variations.[64] policy, given that it is not for the judiciary to "pass upon questions of wisdom, justice or expediency of legislation. [67]

The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the II.
Bicameral Conference Committee hearing, then Finance Secretary Purisima bluntly depicted the countrys gloomy Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A.
state of economic affairs, thus: No. 9337, amending Section 114(C) of the NIRC, violate the following provisions of the Constitution:

First, let me explain the position that the Philippines finds itself in right now. We a. Article VI, Section 28(1), and
are in a position where 90 percent of our revenue is used for debt service. So, for every peso b. Article III, Section 1
of revenue that we currently raise, 90 goes to debt service. Thats interest plus amortization of
our debt. So clearly, this is not a sustainable situation. Thats the first fact. A. Due Process and Equal Protection Clauses

The second fact is that our debt to GDP level is way out of line compared to other Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337,
peer countries that borrow money from that international financial markets. Our debt to GDP amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. 9337, amending Section 114 (C) of the NIRC
is approximately equal to our GDP. Again, that shows you that this is not a sustainable are arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the constitutional right against
situation. deprivation of life, liberty of property without due process of law, as embodied in Article III, Section 1 of the
Constitution.
The third thing that Id like to point out is the environment that we are presently
operating in is not as benign as what it used to be the past five years. Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of
the law.
What do I mean by that? The doctrine is that where the due process and equal protection clauses are invoked, considering that they
are not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead to
In the past five years, weve been lucky because we were operating in a period of such a conclusion. Absent such a showing, the presumption of validity must prevail.[68]
basically global growth and low interest rates. The past few months, we have seen an inching
up, in fact, a rapid increase in the interest rates in the leading economies of the world. And, Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount
therefore, our ability to borrow at reasonable prices is going to be challenged. In fact, of input tax that may be credited against the output tax. It states, in part: [P]rovided, that the input tax inclusive of
ultimately, the question is our ability to access the financial markets. the input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy
percent (70%) of the output VAT:
When the President made her speech in July last year, the environment was not as
bad as it is now, at least based on the forecast of most financial institutions. So, we were Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax
assuming that raising 80 billion would put us in a position where we can then convince them due from or paid by a VAT-registered person on the importation of goods or local purchase of good and services,
to improve our ability to borrow at lower rates. But conditions have changed on us because including lease or use of property, in the course of trade or business, from a VAT-registered person, and Output
the interest rates have gone up. In fact, just within this room, we tried to access the market for Tax is the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered
a billion dollars because for this year alone, the Philippines will have to borrow 4 billion or required to register under the law.
dollars. Of that amount, we have borrowed 1.5 billion. We issued last January a 25-year bond
at 9.7 percent cost. We were trying to access last week and the market was not as favorable
and up to now we have not accessed and we might pull back because the conditions are not Petitioners claim that the contested sections impose limitations on the amount of input tax that may be
very good. claimed. In effect, a portion of the input tax that has already been paid cannot now be credited against the output tax.

So given this situation, we at the Department of Finance believe that we really Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and
need to front-end our deficit reduction. Because it is deficit that is causing the increase of the therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is less than
debt and we are in what we call a debt spiral. The more debt you have, the more deficit you 70% of the output tax, then 100% of such input tax is still creditable.
have because interest and debt service eats and eats more of your revenue. We need to get out
More importantly, the excess input tax, if any, is retained in a businesss books of accounts and remains Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337,
creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that if the input amending Section 110(A) of the NIRC, which provides:
tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. In addition, Section
112(B) allows a VAT-registered person to apply for the issuance of a tax credit certificate or refund for any unused SEC. 110. Tax Credits.
input taxes, to the extent that such input taxes have not been applied against the output taxes. Such unused input tax
may be used in payment of his other internal revenue taxes. (A) Creditable Input Tax.

The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners Provided, That the input tax on goods purchased or imported in a calendar month for use in
exaggeratedly contend. Their analysis of the effect of the 70% limitation is incomplete and one-sided. It ends at the trade or business for which deduction for depreciation is allowed under this Code, shall be
net effect that there will be unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the
fact that such unapplied/unutilized input tax may be credited in the subsequent periods as allowed by the carry-over aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds
provision of Section 110(B) or that it may later on be refunded through a tax credit certificate under Section 112(B). One million pesos (P1,000,000.00): Provided, however, That if the estimated useful life of
the capital goods is less than five (5) years, as used for depreciation purposes, then the input
Therefore, petitioners argument must be rejected. VAT shall be spread over such a shorter period: Provided, finally, That in the case of purchase
of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% or license upon payment of the compensation, rental, royalty or fee.
limitation on the input tax. According to petitioner, the limitation on the creditable input tax in effect allows VAT-
registered establishments to retain a portion of the taxes they collect, which violates the principle that tax collection The foregoing section imposes a 60-month period within which to amortize the creditable input tax on
and revenue should be for public purposes and expenditures purchase or importation of capital goods with acquisition cost of P1 Million pesos, exclusive of the VAT component.
Such spread out only poses a delay in the crediting of the input tax. Petitioners argument is without basis because
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys the taxpayer is not permanently deprived of his privilege to credit the input tax.
goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT payable, three
possible scenarios may arise: It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case
amounts to a 4-year interest-free loan to the government.[76] In the same breath, Congress also justified its move by
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes saying that the provision was designed to raise an annual revenue of 22.6 billion. [77] The legislature also dispelled
that he paid and passed on by the suppliers, then no payment is required; the fear that the provision will fend off foreign investments, saying that foreign investors have other tax incentives
provided by law, and citing the case of China, where despite a 17.5% non-creditable VAT, foreign investments were
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has not deterred.[78] Again, for whatever is the purpose of the 60-month amortization, this involves executive economic
to be paid to the Bureau of Internal Revenue (BIR);[69] and policy and legislative wisdom in which the Court cannot intervene.

Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter With regard to the 5% creditable withholding tax imposed on payments made by the government for
or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions, any excess over the taxable transactions, Section 12 of R.A. No. 9337, which amended Section 114 of the NIRC, reads:
output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes, at the taxpayers
option.[70] SEC. 114. Return and Payment of Value-added Tax.

Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit (C) Withholding of Value-added Tax. The Government or any of its political
his input tax only up to the extent of 70% of the output tax. In laymans term, the value-added taxes that a subdivisions, instrumentalities or agencies, including government-owned or controlled
person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of the value-added taxes that corporations (GOCCs) shall, before making payment on account of each purchase of goods
is due to him on a taxable transaction. There is no retention of any tax collection because the person/taxpayer has and services which are subject to the value-added tax imposed in Sections 106 and 108 of this
already previously paid the input tax to a seller, and the seller will subsequently remit such input tax to the BIR. The Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross
party directly liable for the payment of the tax is the seller.[71] What only needs to be done is for the person/taxpayer payment thereof: Provided, That the payment for lease or use of properties or property rights
to apply or credit these input taxes, as evidenced by receipts, against his output taxes. to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of
payment. For purposes of this Section, the payor or person in control of the payment shall be
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the considered as the withholding agent.
nature of a property that may not be confiscated, appropriated, or limited without due process of law.
The value-added tax withheld under this Section shall be remitted within ten (10)
The input tax is not a property or a property right within the constitutional purview of the due process days following the end of the month the withholding was made.
clause. A VAT-registered persons entitlement to the creditable input tax is a mere statutory privilege.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified
The distinction between statutory privileges and vested rights must be borne in mind for persons have no VAT withholding system. The government in this case is constituted as a withholding agent with respect to their
vested rights in statutory privileges. The state may change or take away rights, which were created by the law of the payments for goods and services.
state, although it may not take away property, which was vested by virtue of such rights. [72]
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not -- 3% on gross payments for purchases of goods; 6% on gross payments for services supplied by contractors other
recoverable from the taxes payable, although it becomes part of the cost, which is deductible from the gross revenue. than by public works contractors; 8.5% on gross payments for services supplied by public work contractors; or 10%
When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting on payment for the lease or use of properties or property rights to nonresident owners. Under the present Section
of the input tax paid on purchase or importation of goods and services by VAT-registered persons against the output 114(C), these different rates, except for the 10% on lease or property rights payment to nonresidents, were deleted,
tax was introduced.[73] This was adopted by the Expanded VAT Law (R.A. No. 7716),[74] and The Tax Reform Act and a uniform rate of 5% is applied.
of 1997 (R.A. No. 8424).[75] The right to credit input tax as against the output tax is clearly a privilege created by
law, a privilege that also the law can remove, or in this case, limit. The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to
creditable, means full. Thus, it is provided in Section 114(C): final value-added tax at the rate of five percent (5%).
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage
concept of final withholding tax on income was explained, to wit: in a legal joust where premises are what ifs, arguments, theoretical and facts, uncertain. Any disquisition by the
Court on this point will only be, as Shakespeare describes life in Macbeth,[82] full of sound and fury, signifying
SECTION 2.57. Withholding of Tax at Source nothing.

(A) Final Withholding Tax. Under the final withholding tax system the amount of Whats more, petitioners contention assumes the proposition that there is no profit or value-added. It need
income tax withheld by the withholding agent is constituted as full and final payment of the not take an astute businessman to know that it is a matter of exception that a business will sell goods or services
income tax due from the payee on the said income. The liability for payment of the tax rests without profit or value-added. It cannot be overstressed that a business is created precisely for profit.
primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax
or in case of underwithholding, the deficiency tax shall be collected from the The equal protection clause under the Constitution means that no person or class of persons shall be
payor/withholding agent. deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in
like circumstances.[83]
(B) Creditable Withholding Tax. Under the creditable withholding tax system,
taxes withheld on certain income payments are intended to equal or at least approximate the The power of the State to make reasonable and natural classifications for the purposes of taxation has
tax due of the payee on said income. Taxes withheld on income payments covered by the long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the
expanded withholding tax (referred to in Sec. 2.57.2 of these regulations) and compensation amounts to be raised, the methods of assessment, valuation and collection, the States power is entitled to presumption
income (referred to in Sec. 2.78 also of these regulations) are creditable in nature. of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.[84]

As applied to value-added tax, this means that taxable transactions with the government are subject to a Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input
5% rate, which constitutes as full payment of the tax payable on the transaction. This represents the net VAT payable tax, or invests in capital equipment, or has several transactions with the government, is not based on real and
of the seller. The other 5% effectively accounts for the standard input VAT (deemed input VAT), in lieu of the actual substantial differences to meet a valid classification.
input VAT directly or attributable to the taxable transaction.[79]
The argument is pedantic, if not outright baseless. The law does not make any classification in the subject
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat of taxation, the kind of property, the rates to be levied or the amounts to be raised, the methods of assessment,
differently taxable transactions with the government.[80] This is supported by the fact that under the old provision, valuation and collection. Petitioners alleged distinctions are based on variables that bear different consequences.
the 5% tax withheld by the government remains creditable against the tax liability of the seller or contractor, to wit: While the implementation of the law may yield varying end results depending on ones profit margin and value-
added, the Court cannot go beyond what the legislature has laid down and interfere with the affairs of business.
SEC. 114. Return and Payment of Value-added Tax. The equal protection clause does not require the universal application of the laws on all persons or things
without distinction. This might in fact sometimes result in unequal protection. What the clause requires is equality
(C) Withholding of Creditable Value-added Tax. The Government or any of its among equals as determined according to a valid classification. By classification is meant the grouping of persons
political subdivisions, instrumentalities or agencies, including government-owned or or things similar to each other in certain particulars and different from all others in these same particulars. [85]
controlled corporations (GOCCs) shall, before making payment on account of each purchase
of goods from sellers and services rendered by contractors which are subject to the value- Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmea
added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added III and Ma. Ana Consuelo A.S. Madrigal on June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The
tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and proposed legislation seeks to amend the 70% limitation by increasing the same to 90%. This, according to petitioners,
six percent (6%) on gross receipts for services rendered by contractors on every sale or supports their stance that the 70% limitation is arbitrary and confiscatory. On this score, suffice it to say that these
installment payment which shall be creditable against the value-added tax liability of the are still proposed legislations. Until Congress amends the law, and absent any unequivocal basis for its
seller or contractor: Provided, however, That in the case of government public works unconstitutionality, the 70% limitation stays.
contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided, further,
That the payment for lease or use of properties or property rights to nonresident owners shall B. Uniformity and Equitability of Taxation
be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the
payor or person in control of the payment shall be considered as the withholding agent. Article VI, Section 28(1) of the Constitution reads:

The valued-added tax withheld under this Section shall be remitted within ten (10) The rule of taxation shall be uniform and equitable. The Congress shall evolve a
days following the end of the month the withholding was made. (Emphasis supplied) progressive system of taxation.

As amended, the use of the word final and the deletion of the word creditable exhibits Congresss Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed
intention to treat transactions with the government differently. Since it has not been shown that the class subject to at the same rate. Different articles may be taxed at different amounts provided that the rate is uniform on the same
the 5% final withholding tax has been unreasonably narrowed, there is no reason to invalidate the provision. class everywhere with all people at all times.[86]
Petitioners, as petroleum dealers, are not the only ones subjected to the 5% final withholding tax. It applies to all
those who deal with the government. In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and
services. Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC,
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue provide for a rate of 10% (or 12%) on sale of goods and properties, importation of goods, and sale of services and
Regulations No. 14-2005 or the Consolidated Value-Added Tax Regulations 2005 issued by the BIR, provides that use or lease of properties. These same sections also provide for a 0% rate on certain sales and transaction.
should the actual input tax exceed 5% of gross payments, the excess may form part of the cost. Equally, should the
actual input tax be less than 5%, the difference is treated as income.[81] Neither does the law make any distinction as to the type of industry or trade that will bear the 70%
limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5%
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to final withholding tax by the government. It must be stressed that the rule of uniform taxation does not deprive
tax a profit or value-added even if there is no profit or value-added. Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class. [87]
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or The Constitution does not really prohibit the imposition of indirect taxes which,
10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not like the VAT, are regressive. What it simply provides is that Congress shall evolve a
exceeding P1,500,000.00.[88] Also, basic marine and agricultural food products in their original state are still not progressive system of taxation. The constitutional provision has been interpreted to mean
subject to the tax,[89] thus ensuring that prices at the grassroots level will remain accessible. As was stated simply that direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should
in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:[90] be minimized. (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221
(Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to evolve, a
The disputed sales tax is also equitable. It is imposed only on sales of goods or progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect
services by persons engaged in business with an aggregate gross annual sales taxes, would have been prohibited with the proclamation of Art. VIII, 17 (1) of the 1973
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its Constitution from which the present Art. VI, 28 (1) was taken. Sales taxes are also regressive.
application. Likewise exempt from the tax are sales of farm and marine products, so that the
costs of basic food and other necessities, spared as they are from the incidence of the VAT, Resort to indirect taxes should be minimized but not avoided entirely because it is
are expected to be relatively lower and within the reach of the general public. difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers'
ability to pay. In the case of the VAT, the law minimizes the regressive effects of this
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly imposition by providing for zero rating of certain transactions (R.A. No. 7716, 3, amending
favors those with high profit margins. Congress was not oblivious to this. Thus, to equalize the weighty burden the 102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4
law entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section amending 103 of the NIRC)[99]
109(v), i.e., transactions with gross annual sales and/or receipts not exceeding P1.5 Million. This acts as a equalizer
because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on equal- CONCLUSION
footing.
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on measure to resuscitate an economy in distress. The Court is neither blind nor is it turning a deaf ear on the plight of
those previously exempt. Excise taxes on petroleum products[91]and natural gas[92] were reduced. Percentage tax on the masses. But it does not have the panacea for the malady that the law seeks to remedy. As in other cases, the Court
domestic carriers was removed.[93] Power producers are now exempt from paying franchise tax.[94] cannot strike down a law as unconstitutional simply because of its yokes.

Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the Let us not be overly influenced by the plea that for every wrong there is a remedy,
burden of taxation. Domestic, foreign, and non-resident corporations are now subject to a 35% income tax rate, from and that the judiciary should stand ready to afford relief. There are undoubtedly many wrongs
a previous 32%.[95] Intercorporate dividends of non-resident foreign corporations are still subject to 15% final the judicature may not correct, for instance, those involving political questions. . . .
withholding tax but the tax credit allowed on the corporations domicile was increased to 20%. [96] The Philippine
Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes anymore.[97] Even the sale by an Let us likewise disabuse our minds from the notion that the judiciary is the
artist of his works or services performed for the production of such works was not spared. repository of remedies for all political or social ills; We should not forget that the Constitution
has judiciously allocated the powers of government to three distinct and separate
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise rest compartments; and that judicial interpretation has tended to the preservation of the
largely on the consumers. It cannot therefore be gainsaid that R.A. No. 9337 is equitable. independence of the three, and a zealous regard of the prerogatives of each, knowing full well
that one is not the guardian of the others and that, for official wrong-doing, each may be
C. Progressivity of Taxation brought to account, either by impeachment, trial or by the ballot box.[100]
The words of the Court in Vera vs. Avelino[101] holds true then, as it still holds true now. All things
considered, there is no raison d'tre for the unconstitutionality of R.A. No. 9337.
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is
the smaller business with higher input tax-output tax ratio that will suffer the consequences. WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056,
168207, 168461, 168463, and 168730, are hereby DISMISSED.
Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was also lifted
from Adam Smiths Canons of Taxation, and it states: There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337,
the temporary restraining order issued by the Court on July 1, 2005 is LIFTED upon finality of herein decision.
I. The subjects of every state ought to contribute towards the support of the government, as
nearly as possible, in proportion to their respective abilities; that is, in proportion SO ORDERED.
to the revenue which they respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected. [98]

The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of
progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business
for every goods bought or services enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the income
earned by a person or profit margin marked by a business, such that the higher the income or profit margin, the
smaller the portion of the income or profit that is eaten by VAT. A converso, the lower the income or profit margin,
the bigger the part that the VAT eats away. At the end of the day, it is really the lower income group or businesses
with low-profit margins that is always hardest hit.

Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT.
What it simply provides is that Congress shall "evolve a progressive system of taxation." The Court stated in
the Tolentino case, thus:

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